Asked seven years ago why Mercedes-Benz was so determined to chase success in China, then boss Dieter Zetsche waved aside accusations of risking boom and bust as the market grew exponentially, referring instead to the opportunity to plant his firm’s fortunes on a tripod rather than stilts. It was an eloquent reference to having strong bases in Asia, Europe and the US, thus diluting the risk of regional economic fluctuations.
To date, even during a global pandemic, this strategy has looked sound. Mercedes’ resilience in 2020 was thanks in no small part to its performance in China, where it set a new sales record, remarkably shifting 11.7% more cars than in 2019 in a market down 6.8%.
Underlining the benefits of the tripod idea perfectly, almost exactly one in three of the 2.1 million Mercedes sold found a home in China.
For all the advantages of scale, to stretch Zetsche’s analogy, the new Stellantis firm’s global base currently sits on stilts of different lengths and strengths.
Dominating in volume on one side is Europe, a market so challenged and regulated that some firms are leaving it, while on the other is the potentially more lucrative but often tribal US market.
China should provide the answer for Mercedes, yet nobody knows the risks there better than Tavares; PSA’s fortunes slumped catastrophically in China in recent years, chiefly in the face of competition from rapidly improving Chinese manufacturers competing in the mid-market.
At its peak in 2014, PSA sold a Mercedes-eclipsing 730,000 vehicles in China; last year, it sold fewer than 50,000, having declared its break-even total to be about 150,000 after an emergency restructuring in 2019.
The FCA side of Stellantis, meanwhile, has little more to speak of, having been slow and short on funds to enter China with a flourish.
Asked late last year if he would consider shuttering operations in China, Tavares replied: “We need to find a formula to succeed.” The logic is clear, but whichever brand leads the way, seeking redemption, a relaunch or a fresh start is going to be expensive and hard work.
With the pressures of Stellantis’s restricted global spread now sharply in focus, the challenges of formalising the merger now pale in comparison to the difficulties (and opportunities) ahead.
As a man who is fond of justifying hard decisions on the basis of building a sustainable future for his employers and employees, Tavares has no option other than to make it work.